French automaker PSA Peugeot Citroën pioneered the art of making a profit from small, cheap cars in Europe during the late 1990s. But ferocious competition and rising costs triggered an 83% plunge in net profits in 2006. So Christian Streiff, the new chief executive, is stepping up and promising that Peugeot Citroën will not only rebound in Europe, but become a global powerhouse. "We aim to be among the top five or six in the industry," said Streiff at the company's annual results presentation on Feb. 7—his first official day on the job.
Streiff has little choice but to go global by pushing into emerging markets, especially China and India. Europe's auto market is stagnant, and competition there from Asian automakers is rising. The combined European market share of Peugeot and Citroën fell from a peak of 15% in 2002 to 13.4% in 2006.
The lost ground will be harder than ever to recoup. "PSA faces the risk that it will be wedged between by Fiat, which is growing strongly again, the ambitious Asians, and Volkswagen, which can demand higher prices," says a Jan. 8 report by M. M. Warburg & Co.
Rejuvenating the Lineup
Taking a page from restructuring ace Carlos Ghosn, chief executive at rival Renault Nissan, Streiff has set up 10 top management teams to rethink how Peugeot Citroën makes cars. The teams, which include managers from different divisions, have 100 days to launch projects that will speed change. "The aim is better products that get to market faster," said Streiff, the former head of Airbus. Streiff said a more detailed plan for revitalizing Peugeot Citroën will be presented in July.
Some help is already on the way, as new models rejuvenate an aging product lineup. The 2006 launch of the Peugeot 207 subcompact, Peugeot's most important model, and the 2007 launch of the Citroën C4 Picasso minivan, should help Streiff get traction. The average age of PSA's passenger car lineup hovered at a high 4.5 years in 2005 and is expected to drop to 3.8 years in 2007, giving Peugeot and Citroën a fresher, more competitive face in the market.
But Streiff will also have to wield the knife. Material costs cut into the French automaker's profits heavily in 2006, as did the closure of a plant in Great Britain. For 2007, Streiff vowed to cut manufacturing costs by $780 million and intensify efforts to reduce quality problems and bring warranty costs down. "The mission entrusted to me is to renew growth and profit as quickly as possible," said Streiff. "We must bring down our cost base to become more competitive."
Looking Beyond Europe
Clawing back market share in Europe is the hard part, even with new models. A slew of rivals is now hiring top auto designers and encroaching on the styling edge the French once wielded. Peugeot Citroën sales in Western Europe dipped 2.7% in 2006. Total car sales were down 0.7% to 3.36 million cars and revenue fell 1.1% to $59.9 billion. The group's operating margin fell from a healthy 4.4% in 2004 to 2.0% in 2006, while the automotive unit posted an operating margin of only 0.6%, from 2.0% in 2005.
Little wonder, then, that PSA's hope for the future lies beyond Europe—especially in Asia. Sales outside Europe rose 14.7% to 819,300, or 24% of total sales. In China, sales jumped 43.7% to 202,000 cars. PSA plans to double the capacity of its Wuhan plant to 300,000 vehicles a year by 2008 and add another plant in 2009 with a capacity to build 150,000 cars a year.